There are a number of things that dentists can do to improve their tax situation and build their wealth that they may not know about. For instance, dentists and healthcare professionals typically miss certain kinds of incentives. One of these is business deductions. Most don’t understand that you can make practically anything deductible. This is why Tom says, “if you want to change your tax, you have to change your facts.” Remember, anything is deductible, as long as it has a business purpose and is documented. Dentists, lawyers, retailers, pharmacy owners, and others all get similar deductions.
To make something deductible, you have to change your mindset and ask if your expenses are making you money. The key you must understand to make money is that you have to spend money on things that make money because then it is deductible. Most of the tax law is a series of incentives. Wealth building and tax reduction goes hand in hand in the tax law.
Another thing that is important to keep in mind when building wealth is that contrary to what you may have been told, you should not diversify when building wealth. Having investments in different asset classes will not grow your wealth. It’s a huge mistake to diversify your investments as you will always be chasing returns, which stifles wealth. To build wealth, you need to be specialized. For example, in dentistry, the more specialized you are, the more money you make. The same is true in investing. You need to focus on one asset class and use the same investing strategy over and over. This is how people like Elon Musk and Warren Buffett do it. Focusing on being specialized in your investing will help you get good at taking advantage of the tax incentives that are available to you as an investor.
To get the most tax benefits from investing in real estate, as a dentist, you should focus your investment strategy on your business. The best investment is putting money back into your own practice. Put your offices in real estate you own. As you expand into multiple practices, go and buy real estate that you now own. This provides major advantages from a tax standpoint.
One of these advantages is getting bonus depreciation of real estate. You will get to deduct 20-30% of the cost of the project the day you buy it. Just think, that’s a lot of money you can reinvest right away and capture the tax benefits. You can keep investing to keep your taxes down and keep building wealth.
If you choose to invest in real estate outside your business, you won’t get some tax advantages because that real estate is now passive, and you have a passive loss challenge. By locating your practice in the real estate you invest in, you eliminate the passive loss issue.
Essentially, the government wants you to invest in your business, so you buy real estate for your business. Once you buy real estate for your business, consider investing in solar by placing solar panels on your property. Now you have achieved business tax benefits, real estate tax benefits, and energy tax benefits all as part of your primary business activity and you never diversified!
Now you have the blueprint to achieving your financial dreams.
Remember, you ultimately are in charge and are responsible for your investments and decisions, but you should surround yourself with a team of great advisors who understand wealth building and tax reduction. Schedule a call with us today to find out how TFW Advisors® can help you make way more money and pay way less tax!